Thank you. It’s a pleasure to be here this morning. I’d like to thank Dick Wiley and the organizers of PLI’s Annual Institute on Telecommunications for bringing all of us together.

You should know that Dick specifically requested that I address only telecom issues today and not broadcasting. So in keeping with his request, I left my multimedia presentation on indecency and violence in the media back at the office, and I am going to talk about enforcement and competition instead. Blame him.

Almost five years have gone by since the passage of the 1996 Telecommunications Act and there is now much information on the topic of local telephony competition. According to the FCC’s latest local competition report, we are seeing an acceleration in the provisioning of local services by new entrant competitors. This report shows increases in the number of lines served by competitors in the first 6 months of 2000. Some highlights are:

Competitive LECs (or CLECs) reported providing 12.7 million local service lines, that is 6.7% of the lines in service nationwide, an increase of 53% since the end of 1999;

CLECs provide about one-third of end-user lines over their own loop facilities; and

At least one CLEC reported providing service in the District of Columbia, Puerto Rico, and all states except Idaho.

While the percentages are still low, a more than 50% increase in 6 months is a significant acceleration of competitive entry. This is good news.

But not all the news is good. The Washington Post reported last week that the stock of 27 of the 35 publicly traded CLECs is priced below $10 a share. Covad recently announced that it is limiting its provision of residential DSL service to line sharing. Last month ICG Communications filed for bankruptcy. Some analysts are predicting 50% or more of the CLECs won’t survive.

I would like to stop for a moment and emphasize that the most important benefits of competition are the benefits for consumers. Competition will bring consumers innovative services, both from competitors and incumbents. A point in fact, the most apparent competitive successes resulting from the 1996 Act are reflected in the growing availability of advanced services. While now both new competitors and incumbents are vigorously competing for DSL business, it was the threat of competition that drove the incumbent LECs (or ILECs) to compete for this business.

Yet, despite these encouraging numbers, I hear complaints from residential consumers about their lack of competitive options. Increasingly we all hear reports about the numerous CLECs that are in financial trouble. And at the Commission we need to ask some hard questions. Do we need to step up enforcement of our rules? Are there other steps that we need to take to ensure that the playing field is truly leveled?

At the outset we need to examine the FCC’s authority to oversee compliance with those portions of the statute and our rules and orders that are directed at opening markets to competition.

We have three enforcement tools for overseeing our local competition rules: our general enforcement authority under section 208 of the Act, our decisional power pursuant to section 271, and our ability to enforce the pro-competitive merger conditions that numerous ILECs have voluntarily agreed to.

This morning I’d like to examine each of these enforcement tools and how the Commission is using its oversight to facilitate local telephony competition.

I. General Enforcement Authority

The first of our enforcement tools, found in section 208 of the Act, gives the FCC broad authority to conduct investigations into potential violations of the Act and our rules. Just over a year ago, we created a new Enforcement Bureau that consolidated most enforcement matters in one operation. This action reflected a recognition that we needed a stronger enforcement arm to ensure all parties play by the rules.

What are our tools? Where the Commission determines there is evidence that a violation has occurred, it can issue a Notice of Apparent Liability (or NAL), imposing monetary and other penalties, as provided for by statute. The Commission can also enter into consent decrees with carriers under investigation or against which an NAL has been issued, generally resolving the dispute without making a finding of violation, but providing for remedial measures.

Some CLECs contend that the FCC needs to take more affirmative enforcement actions to ensure compliance with our rules. I recognize that, while we have taken significant enforcement actions in the past year, we can do more. Indeed, it is our obligation to do more. Strong enforcement must go hand in hand with de-regulation.

In considering the need for more stringent enforcement, it is instructive to look at the results from the enforcement actions we have taken. This year, the Commission entered into two consent decrees arising out of alleged violations of local competition provisions of the Act, our rules and our orders.

We entered into a Consent Decree with GTE in which GTE agreed to pay $2.7 million to the U.S. Treasury in response to allegations that it failed to offer cageless collocation after our rules clearly required it. GTE also agreed to be subject to automatic monetary penalties if it failed to comply with certain collocation performance measurements within six months.

We entered into a Consent Decree with BellSouth in which BellSouth agreed to pay $750,000 to the U.S. Treasury in response to allegations that it failed to provide cost information in a timely manner to requesting CLECs in the course of interconnection negotiations. BellSouth also adopted expedited procedures for all CLECs to gain access to confidential information in the course of future interconnection negotiations

In each of these cases, the Commission enforced specific requirements of its rules that were designed to counteract one of the most effective barriers to local competition: ILEC delay. In GTE’s case, it was GTE’s alleged refusal to provide a new, less expensive, more rapidly deployed form of collocation; in the BellSouth case, it was BellSouth’s alleged initial refusal to provide necessary cost data that prolonged unnecessarily the interconnection negotiation process.

In both of these cases, adoption of the consent decree provided the Commission with an opportunity to impact future conduct and direct future compliance—all for the benefit of competition. The measures agreed to by the carriers and the timeliness of their compliance outweighed the benefits of moving forward with an NAL. Time is essential in ensuring compliance with our rules. An NAL can be a very effective penalty, and thus a deterrent, but a Consent Decree can also send the message that the Commission is enforcing its rules.

So where we have used it, our general enforcement authority has achieved proven results. As we are faced with evidence of CLECs encountering roadblocks on the road to competition, we need to examine whether we are using our enforcement powers in a way that deters ILECs from violating our rules. At the same time, we need to remain mindful that our role is to foster competition, not to protect individual competitors.

II. Section 271 Oversight

Another tool in our enforcement box is our role in the section 271 process. Section 271 provides Bell Companies with the opportunity to obtain the so-called "carrot" of telecom competition, the ability to provide in-region long distance service. To obtain this carrot, Bell Companies must open their local markets to a sufficient level of competition.

The Commission’s job, when reviewing a 271 application, is to examine and weigh the evidence in light of the competitive framework set out in the Act and our rules and orders. What this process amounts to is a thorough and speedy examination of a Bell Company’s compliance with the requirements of the Act. Thus, in ruling on 271 applications, we enforce the Act. What are the results of this enforcement in the states where a Bell Company has received 271 authority? Competition and more consumer choice in all of the relevant markets.

It is instructive to look at the state of competition in New York and Texas when considering the role our oversight plays in moving towards a competitive market.

For example:

At the time Bell Atlantic filed its New York application in fall of 1999, CLECs served 7% of the local lines.

As of June 30 of this year, CLECs served 15.8% of the local lines in New York.

In Texas in December of 1999, prior to filing its 271 application, SBC was provisioning UNE-P orders at a rate of 24,000 orders a month and had provisioned a total of 495 DSL loops that month.

In Texas in October of this year, SBC was provisioning UNE-P orders at a rate of 148,000 per month and had provisioned 3600 DSL loops that month.

Thus, where the FCC’s competitive framework has been enforced through the section 271 application process, we have evidence that consumers are seeing the benefits of competition.

Section 271 also provides for some specific enforcement processes. Once an application has been approved, the FCC has explicit authority to take enforcement action if a Bell company ceases to meet a condition of its approval. If this occurs, we can order the carrier to come into compliance with the terms of their 271 approval, we can fine them, we can suspend their ability to provide long distance service and, in egregious cases, we can revoke the long distance authority.

As it turns out, our first major enforcement action this year followed on the heels of our first approval of a section 271 application. Shortly after the grant of Bell Atlantic’s (now Verizon’s) New York application, we received information suggesting Bell Atlantic had ceased to provide nondiscriminatory access to its operations support systems, or OSS. Our Enforcement Bureau found significant evidence on which to move forward with an enforcement action. We immediately began discussions with Bell Atlantic to resolve the problem and, shortly after, entered into a consent decree in which Bell Atlantic agreed to make a voluntary payment of $3 million to the U.S. Treasury.

In addition, as part of a coordinated enforcement effort with the New York Public Service Commission, Bell Atlantic agreed to give $10 million in billing credits to the affected CLECs. Moreover, the New York PSC subjected Bell Atlantic to continuing additional performance measurements. These are all positive steps towards ensuring compliance with our rules.

While the consent decree established performance measurements and associated penalties for non-performance, I dissented from it because we had clear authority to order penalties other than fines that I thought would have benefited competition. I did not believe that the benefits of the concessions agreed to were superior to the remedies provided for in the Act. A more appropriate enforcement action would have been to direct Bell Atlantic to show cause why the Commission should not suspend its authorization to provide long distance service to new customers in New York.

As I noted in my dissent, Bell Atlantic had the burden to demonstrate that it had not ceased meeting a fundamental requirement of its approval. In fact, we had explicitly stated in the approval order that evidence of the type of violation at issue here would justify suspension of the authority granted.

While I expected that the Consent Decree would provide significant incentives for Bell Atlantic to come back into compliance, I thought that a stronger message needed to be sent. Delay and obstruction are powerful competitive tools for incumbents and we must not encourage players to "violate now, comply only when caught." We need to be careful not to dilute the very specific enforcement mechanisms that section 271 provides.

III. Merger Oversight

The last area of enforcement I would like to discuss is our merger oversight. The FCC has approved several mergers involving ILECs over the last few years. One of the notable results of these mergers is that much of the industry is subject to merger conditions directed at facilitating competition in the affected regions.

There is clearly an ongoing debate about the Commission’s involvement in mergers both at the Commission and on Capitol Hill. But at present, the Commission’s review of mergers is clearly required by law. The FCC, as an agency with specific industry expertise, is often required to use this expertise and consider characteristics of the proposed merger that are outside the scope of another agency’s inquiry. In particular, the FCC must determine whether the transfer would be "in the public interest." Courts have said that a proper inquiry under the public interest test must include -- not "may include" but "must include" -- an analysis of the competitive impact of the transaction on the relevant communications market.

In applying the public interest test, we weigh potential public interest harms against potential public interest benefits to ensure that, on balance, the merger serves the public interest, convenience and necessity. Where we find that the potential harms outweigh the benefits, we will consider whether conditions designed to mitigate identified harms or otherwise provide additional public interest benefits change the balance.

I don't deny or apologize for the notion that the FCC has a greater ability to affect carrier behavior in the context of a merger than it does otherwise. But I would say to those who contend we are overstepping our authority that we have best served consumers by accepting -- where appropriate -- pro-competitive, pro-consumer proposals agreed to by the merging carriers as conditions of merger approval.

In many cases, the merger conditions are directly related to oversight of our local competition rules. And with merger conditions, the Commission can establish streamlined oversight mechanisms for ensuring compliance, such as requiring the carrier to report specific, detailed performance measurements and subjecting the carrier to independent audits.

Such conditions ensure measurable commitments will be kept, or penalties will be imposed. For example, the reporting of performance measurements can be tied to self-enforcing monetary payments. That certainty serves two valuable purposes, it provides a clear incentive for compliance and it eliminates the need for lengthy proceedings over what constitutes a failure to meet a commitment and what is the appropriate degree of penalty.

We are seeing the benefits of this approach this month. SBC recently submitted, in accordance with its merger obligations, performance data showing failures to meet established performance standards for three consecutive months in the areas of access to O.S.S., provisioning performance, and repair performance. Yesterday, SBC reported to the FCC its’ estimated payment obligation for these failures. We expect SBC to make its payments to the U.S. Treasury by December 20.

Contrary to how it might sound, our goal here is not to reduce the government debt. Our goal is to ensure compliance with commitments designed to facilitate competition and benefit consumers. While SBC did not meet all its performance goals, it met many and it will suffer the agreed-to consequences for its failures. I expect a high rate of compliance with merger conditions, as they are structured to quickly uncover noncompliance.

While we are on the topic of mergers, I would also like to take a moment to mention other tangible consumer benefits of merger conditions. We now have concrete evidence of how reporting requirements have directly benefited consumers. As part of the conditions of its merger, SBC was required to report quarterly on consumer service quality. This past summer, consumer service quality in the former Ameritech region declined sharply. State regulatory staff were able to access SBC’s quarterly filings to build their cases and take regulatory action.

Additionally, the Chief of our Common Carrier Bureau had sufficient information at her disposal to determine quickly that a significant service quality problem existed and act on that knowledge with a pointed letter to SBC.

The result of the state and federal actions was a rapid response from SBC, moving their resources, that is, literally moving personnel, to respond to the problem quickly. In this case, reporting requirements resulted in state and federal agencies having sufficient information readily available, enabling them to act decisively in consumers’ interests.

IV. Conclusion

In conclusion, sustained and vigorous enforcement of our rules is essential to ensure that CLECs remain viable, so that, consequently, consumers reap the benefits of local telephony competition. The Commission has taken enforcement actions in several contexts that have already facilitated competition. But, we need to continue to accelerate the enforcement track.

Let me make clear that it was not my intent today to pick on any particular incumbent LEC for any specific violation of our rules. Rather, my goal was to strongly reiterate my position that in order for our rules to have the chance to result in the competitive market that is their goal, they need to be enforced. We have a variety of enforcement tools at our disposal and I am very supportive of the efforts of both the Enforcement and Common Carrier Bureaus in overseeing compliance with our rules.

Looking down the road, it seems certain there will be some changes in the Commission over the course of the next year. Without joining the army of speculators regarding who will go and who will stay, this is a good opportunity to emphasize that one of the most important roles for the Commission is that of an enforcer.